If you don’t have a 501(c)(3) designation, you can either incorporate as a nonprofit agency on your own and apply for a charitable tax exemption or you can find an existing agency to act as a fiscal sponsor to accept and administer your grants. Gregory L. Colvin, a recognized expert in fiscal sponsorships, developed a useful comparison of legal factors between the two options for the San Francisco law firm of Adler & Colvin (www.fiscalsponsorship.com). He believes fiscal sponsorship is the best option for new, experimental projects wanting administrative and financial management. On the other hand, incorporating as a new 501(c)(3) makes better sense for projects with administrative and financial staff in place, a program with a track record, and a measure of assured funding. Incorporation takes time (from three months to a year), money ($1,000 to $10,000 or more in registration, legal, and accounting fees), and persistence.
A fiscal sponsor is considerably cheaper (from free to 10 percent or more for management fees) and can accept grants and other contributions on your behalf immediately. There is no such thing as a free lunch, however, and fiscal sponsors and their board of directors ultimately have control over your project. Although
in actual practice they usually delegate much authority back to an advisory committee and the project director, there will be a price to pay. This may range from minor annoyances like their wanting reflected prestige or obsequious acknowledgment to more meddlesome micromanagement of daily activities or attempts to adapt the project as their own. If maintaining autonomy and independence is important to you, incorporation is the way to ensure you retain control over your project. Of course, this isn’t an either-or situation. Many small, new groups operate under a carefully selected fiscal sponsor for a year or two while they complete the incorporation process.
If you choose to incorporate, contact the attorney general in your state for the official requirements, application forms, and fees. These vary from state to state but usually come in prepared packets with technical support offered online, in regional workshops, and through phone consultations. If you need additional help, contact one of the Small Business Development Centers sponsored by the Small Business Administration (SBA) in conjunction with community colleges or SCORE (Senior Corps of Retired Executives), which are often found at Chambers of Commerce. Online directories of these two groups, which offer free services, can be found at www.sba.gov/aboutsba/sbaprograms/ sbdc/sbdclocator/SBDC_LOCATOR.html and www.score.org/findscore/
index.html, respectively. Ask specifically for someone who is familiar with nonprofit corporations when you call to make an appointment.
Now back to fiscal sponsorships. Basically, any nonprofit with a 501(c)(3) public charity designation can agree to an arrangement whereby they accept and manage grants and donated funds on your behalf. You will want to select an organization whose mission is similar to yours and who has a good reputation and solid financial base on its own. This might be an educational institution, the church or synagogue down the street, a professional organization, or one of the agencies you visited while you were developing your project idea and need statement. The Foundation Center has an excellent free tutorial dealing with individual grant seekers and fiscal sponsorships at http://foundationcenter.org/getstarted/faqs/html/fiscal_agent.html. One resource they suggest that I found particularly helpful was the Fiscal Sponsor Directory (http://www.fisc.org), which lists 168 organizations in 31 states that have experience and are willing to serve as fiscal sponsors.
You can search by state, service category, or keyword to find appropriate profiles, which include contact information, number of sponsored projects, fees, eligibility requirements, and types of services provided. The
growth of new fiscal sponsors has accelerated exponentially since 2000 so this is worth investigating, especially if you are seeking funds for arts and culture (73 percent of the sponsors are willing to accept such projects.) or live in California (more than a third of the listings are located in the Golden State).
Read More: Incorporation or Fiscal Sponsorship ?
